Nearly 70% of businesses are ramping up their investment in supplier risk detection

Companies say a key driver of rising investment levels in supplier risk detection is the levels of threat to their reputations, according to a study from the financial intelligence firm Moody’s Analytics.

Businesses pointed to a range of factors driving that assessment, including: a lack of data, difficulty evaluating every organization in a supplier network, and the responsibility for supply chain visibility being spread across departments. 

Despite the rising threat, 69% of businesses say they do not have the necessary visibility over their supply chains to uncover risk in their organizational networks to avoid reputational harm. And at the same time, 74% rated their third-party risk management sophistication as either poor or mediocre. So 70% of businesses are growing their investment in third-party risk management, Moody’s said in the report, “The rising tide of third-party risk management -- Surfacing risks to safeguard reputations.”

“The past couple of years have brought supply chain risk to the fore. Organizations that can account for the environmental impact of their suppliers and demonstrate that they work with fair and ethical organizations can better protect their reputations and are more appealing to consumers. It’s clear that visibility of supply chain risks can provide huge competitive advantages,” Keith Berry, general manager, Know Your Customer Solutions at Moody’s Analytics, said in a release.

The report identified four advantages of improved third-party risk management: avoidance of reputational damage, improved operational resilience, avoidance of fines, and faster time to supply chain recovery following disruption.

And identifying risks associated with suppliers buried in the supply chain is particularly crucial to consumer-facing businesses and regulated organizations which are particularly sensitive to reputational risk, Moody’s said. Those pressures have recently risen even higher due to new regulation such as the German Supply Chain Due Diligence Act and the EU’s upcoming Corporate Sustainability Reporting Directive, the report said.